Negotiating with Vendors

Program Description: Negotiating with Vendors – Sunday 10/19/08 – 3:30-4:30

How does negotiation fit in the acquisition cycle for products and services for your library? Dr. Toby Pearlstein, retired Global Director of Information Services for Bain & Company, constructs some sample frameworks you can use to inform yourself before negotiations begin. What questions should you ask? What pitfalls should you avoid? If you are new to negotiating you will learn key rules to bolster your capabilities. If you are experienced, this is an opportunity to reinforce, compare and contrast your techniques.

Impressions:

Dr. Pearlstein’s pragmatic approach made this program a success anyone could get something valuable from. As someone with 15 years experience negotiating with vendors as one of the primary function of her career, she was able be realistic without being a downer and understood the importance of giving examples and experiences that would allow us all to hit the ground running when we got back to our negotiations. The handout from this session will be available on the NELA website and include a bibliography, contract examples, checklists, and matrices for evaluation that will be invaluable to anyone entering the negotiation process.

I was especially delighted that she openly invited us all to share their experiences with her and one another in a peer commons way, noting that her experience from a professional services perspective may be different from ours, and that each of our experiences may differ from each other. We all have something to learn from one another. Though there was not a lot of time for questions and only a few people asked, it was important to allow for that process should it arise.

Notes from the session:

You will never have enough money to buy everything you want or need, so embrace the process of compromise. What do you have and what’s the best you can get with it? Instead of going for whizz-bang, aim for the most bang for your buck. The newest, flashiest, most expensive thing may not even be right for your patron base, so know your audience and build to suit.

Dr. Pearlstein showed a collage of titles on negotiation that demonstrated how the process is approached in adversarial or confrontational way, or as something mysterious. We all need to recognize that we negotiate all the time; we all have experience with it. It’s not about that, it’s about developing long-term partnerships that are driven by the library’s mission. If you are not totally in line with you mission, you will go astray in the negotiation process. Do you want it or do you need it or do you see a need for it that you weren’t previously aware of. What is the library bottom-line and how are these products meeting it.

There was a wonderful checklist of things to ask vendors that I would say EVERYONE should go download…right now. You must evaluating what the vendor can do versus what you will have to do for yourself, being very specific to ensure you don’t incur extra work or need to buy extras that you didn’t count on. It comes down to being able to estimate as close as possible to the actual costs based on things like checklists, matrices, and talking to parties from any departments that may have any involvement. Sometimes we forget to ask first and end up doing a lot of damage control.

Is it the right time for a product or service? Be able to build a business case in order to get the money to do it, then the business case will shape the negotiation process.

We need to always be thinking about the better return on the investment. Never assume that what you have is the best thing to suit your need. Constantly evaluate the best way to fill a need instead of just making the decision once and living with it.

Traditionally we’re not considered a competitive environment, probably because we are not profit driven, but thinking about how to get the competitive edge, even with other libraries or other city/school services, will make the negotiation and justification better because it has a more solid purpose.

References, check ’em!!!!! Ask the vendor for their list, but find your own for the balance. Listservs and associations are good ways to get those independent references. You run a huge risk of getting burned by not doing this.

Vendors should be able to tell you who their competitor is and why they are a better choice for you. “I am the best…look no further” smacks of ignorance of the field. They should be able to demonstrate that they have done their homework about your business as well.

Draw from as many sources as necessary. Do you need to talk to IT, lawyer, marketing, program directors? You will avoid doing them wrong, or ending up with something that is wrong for them, if you can consider them at the negotiating process.

Service Level Agreement should be built into all contracts!!!! Customer relationship manager and not the regular 800 number types of special conditions need to be explicitly stated in the contract if you want them. If they are unwilling to do that, maybe you don’t want to do business with someone who has no interest in being held accountable.

Get an “out clause” in there as a way to back out if it doesn’t work. Sometimes even with all the homework, things can go wrong and you need to know if there is a way out. Also try to avoid automatic renewal…walk away if this is a deal breaker. Don’t be bullied, know what is reasonable or unreasonable. If it feels unreasonable, it probably is.

Understand their needs, they are business and they have quotas. Knowing what their pressures are gives you leverage. Flea Market Philosophy – if you can’t get it for what you want or feel is reasonable, the walk away. Don’t use it as a scare tactic, but be firm.High cost is not always the best…high value can come at a lower cost. More is not always best. Sometimes more is just more. Can you buy a slice and work up to something more if needed, until it’s just right? Nothing is cast in stone; you can scribble all over a contract. You are never constrained by what they hand you.

 

ROI – Return on investment. If you can do this in dollars, than great, but there are other qualifiers, like usage. Anecdotal is valuable, but also survey users. Focus groups (third party if possible) and cost recovery analysis, anything that can help you prove quantitatively the worth of the product.

There will always be compromise and risk in a vendor relationship – don’t be afraid to use a third party facilitator to make sure that this compromise is a true compromise and not you being compromised. In the long run it cannot be combative relationship or it won’t work. It must be win/win. Risk can be a great thing! Be honest, if you say you’re going to walk away, you have to be willing to do it. Avoid the wink, wink provisions. Do not count on anything that is not in writing.

BST America, Outsell, places will help you negotiate if you feel like you will need a third party to help.

Q & A

Q – Someone asked if they could include things like renewal prices and multiyear in a contract.

A – Absolutely. Anything you feel you can explicitly state. The more that is expressly written out, the closer you will be to a really accurate cost.

Q – What type of profit are most vendors making?

A – It’s hard to get them to give you that, but you want them to make a profit so that they will have money to develop. You can ask them how much of their profit goes to different areas to get an idea of their priorities, like the marketing costs would shock most folks.

Q – Vendors seemed to want to do the slice of service 5-10 years ago, but not anymore. Can we really still get a piece and work up to a fuller package?

A – That may be true, and you have to make hard decisions about how much you can afford to buy. Not every vendor will do it, but it never hurts to ask. Be an informed consumer; always try to minimize a hit. If you can’t have a slice at a time of service, maybe you can have a balloon of service later, or a slow trickle at first that is promised to turn into more. Some sale is better than no sale to most vendors, but it is not always realistic to assume they will let you have that slice you feel is the right fit if it’s not what they are trying to sell.

Q – How do you make provisions for information being pulled out of a database?

A – If they lose or remove content you feel is critical than they need to provide some kind of recompense…credit or replacement. Make sure you ask about those.

After the Program

I asked Dr. Pearlstein at what point does one choose to pursue a breach of contract issue with a vendor or simply choose to walk away. Her answer, of course, was that it is different for every organization and the length and level to which the dissatisfaction extends. The key is to know exactly what is in your contract, especially the built in language about breach of contract, seek out the advice of a lawyer if necessary to gain clarity and pursue action.

I also talked to her about that desire for vengeance we can all sometimes feel when we are being taken advantage of by, or being ignored by, our vendors. The conclusion of that conversation was that it’s all a learning experience, and that the better thing to do is make note of what isn’t working in that vendor relationship and rewrite the contract to fix it, or to take that knowledge to negotiation process with another vendor when the time comes. These bad experiences are full of potential clauses to insert in future contracts so that each time, it has the potential to be a better relationship and a better agreement.

Have a Question?

Contact Dr. Tony Pearlstein at toby.pearlstein@comcast.net

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